1、Air Lease Corporation Annual Report 2013On the Leading Edge of AviationALC is a leading aircraft leasing company based in Los Angeles,California.ALC and its team of dedicated and experienced professionals are principally engaged in purchasing new commercial aircraft delivering from its direct orders
2、 with Boeing,Airbus,Embraer,and ATR,and leasing them to its airline customers worldwide through customized aircraft leasing and financing solutions.The mission of ALC is to work with these airlines to modernize and grow their fleets,consult with OEMs as they develop the next generation of fuel-effic
3、ient and environmentally friendly aircraft,and continue to explore strategic business solutions for our clients to support their growth and success.Beyond lease expertise,ALC offers route and schedule analysis,fleet optimization and planning,aircraft and engine purchasing consulting,aircraft procure
4、ment services,aircraft financing support,aircraft investment analysis and recommendations,and can act as global servicer and manager for aircraft lease portfolios.t w o february 5th$400 Million of Unsecured Senior Notes Issued march 11th$77 Million of Notes Issued and Guaranteed by the Export-Import
5、 Bank of the United States may 7thClosed a$1.7 Billion 4 Year Unsecured Revolving Bank Facility may 9thKroll Bond Rating Agency Initiated a Corporate Credit Rating of A-for ALCexpanding access to capitalA TIMELINE Of OuR MAjOR AChIEvEMENTsAs an investment grade company,we have significantly expanded
6、 the breadth and depth of financing sources available to us.Unsecured funding grew by$2.7 billion primarily through capital markets transactions and our agented bank revolver.t h r e e auGust 26thStandard and Poors Rating Agency Initiated a Corporate Credit Rating of BBB-for ALC NOVember 19th$700 Mi
7、llion of Unsecured Senior Notes Issued with Investment Grade Ratings NOVember 4thUpsized the Unsecured Revolving Bank Facility to$2 BillionRolls-Royces Trent 1000 is the launch engine for the Boeing 787 Dreamliner family of aircraft OctOber 1st$185 Million Private Placement of Unsecured Senior Notes
8、 Issued with an NAIC 1 Rating balance sheet strength f o u r2.3 to 1$5.9b$2.5bDebt to equityOutlookcredit ratingsAgencyRatingstablestandard&Poors ratings servicesbbb-stableKroll bond rating agencya-secured Debt to total assets SECURED DEBT ToTAL ASSETS34.5%201123.8%201216.7%2013Proven Performance f
9、i v erevenue and Pretax Income REvENUE PRETAx INCoME PRETAx MARGIN201334.2%$293m$859m31.1%$656m24.6%20122011$491m$654mcash flow from Operations$267m201120122013contracted minimum future rentals on existing fleet at year end2011$2.3b2012$5.0b2013$6.2b$337m$83m$204mTOTAL AIRCRAfT ON ORdER ThROugh 2023
10、327As A LEAdINg CusTOMER Of BOEINg ANd AIRBus,we now control one of the largest order books in the aircraft leasing industry.our pipeline of aircraft deliveries over the next decade ensures that we will have the most modern and in-demand narrowbody and widebody aircraft in our fleet.Our Pipeline for
11、 continued Growth2014201513135462081 s i x s e v e n20162017201815321112115718OuR dELIvERy PIPELINE ThROugh 2023Aircraft Type Total AIRBUS A321-200 19 AIRBUS A320/321NEo 50 AIRBUS A350 xWB 30 BoEING 737-800 59 BoEING 737-8/9 MAx 104 BoEING 777-300ER 15 BoEING 787-9/10 45 ATR 72-600 5TOTAL 327TOTAL f
12、ORwARd ORdER BOOk ThROugh 2023$27.3Bboeing 787 Dreamliner e i g h tAdding to our existing order base of 787-9 aircraft,ALC became a launch customer of Boeings 787-10 when the company committed to an order of 30 of the newest high capacity version Dreamliner in June.These aircraft possess the charact
13、eristics airlines desire by offering the ideal size,capabilities and economical operating costs for their medium to long-haul markets.According to Boeing,the 787-10 delivers higher profit on high-demand core markets,generating leading economics in the sky.With a range of up to 7,000 nautical miles a
14、nd seating for up to 330 passengers,the 787-10 combines enhanced technology,improved passenger experience,and strong operational metrics that customers have come to expect from ALCs fleet of high performance aircraft.n i n eairbus a350In February ALC contributed to one of the most successful commerc
15、ial launches in the aircraft industry by committing to 30 Airbus A350 xWB(xtra-Wide Body)Family aircraft.The A350 xWB Family is becoming a leader in efficiency in the long haul segment.The A350 xWB is an all-new mid-size long range product line comprising three versions and seating between 270 and 3
16、50 passengers in typical three-class layouts.Airbus reports that the new family will bring a step change in efficiency compared with an earlier generation aircraft in this size category,using 25 percent less fuel and providing an equivalent reduction in Co2 emis-sions.These aircraft will help airlin
17、es grow their businesses while simultaneously reducing their operating costs and emissions.The A350 xWB is an excellent addition to the ALC fleet as the company continues to supply customers with the technologically advanced,fuel-efficient aircraft demanded by the market.t e nALC AddEd 13 NEw AIRLIN
18、E CusTOMERs IN 2013,bringing our count to 79 airlines across 47 countries at the end of the year.We maintain a globally diversified portfolio of customers,balancing exposures by country,region,and individual airline in our efforts to create the strongest credit profile for an aircraft lessor.a Globa
19、l Network of customerseurOPeasIa PacIfIcLatIN amerIcaNOrth amerIcaafrIca&mIDDLe east e l e v e naNtIGua aND barbuDa LIATaustraLIa QAnTAsVIetNam Vietnam AirlinesbeLarus Belavia brazIL Azul,Gol Airlines,Passaredo Linhas Aereas,TrIP Linhas AereasbuLGarIa Bulgaria AircaNaDa Air Canada,sunwing Airlines,W
20、estJetcOLOmbIa Aviancaczech rePubLIc Travel serviceDeNmarK Jet TimeeL saLVaDOr TACAeNGLaND Thomas CookethIOPIa Ethiopian AirlinesfraNce Air Austral,Air FranceGeOrGIa Georgian AirwaysGermaNy airberlinhONG KONG Cathay Pacific AirwaysINDIa spiceJetINDONesIa Garuda Indonesia,Kalstar AviationItaLy Alital
21、iaJaPaN skymark AirlinesKazaKhstaN Air AstanaKeNya Kenya AirwaysmaLaysIa AirAsiamaLDIVes MaldivianmexIcO Aeromar,Aeromexico,Interjet,VolarismONGOLIa MIAT Mongolian AirlinesNetherLaNDs KLM,New zeaLaND Air new ZealandNOrway norwegian Air shuttlePaKIstaN airbluePOLaND Bingo AirwaysrussIa s7 Airlines,Tr
22、ansaero AirlinessauDI arabIa nAs airsOuth afrIca south African AirwayssOuth KOrea Asiana Airlines,Jeju Air,Korean AirsPaIN VuelingsrI LaNKa Mihin Lanka,sriLankan AirlinessweDeN TUIFly nordicswItzerLaND sWIssthaILaND Orient Thai AirlinestrINIDaD aND tObaGO Caribbean AirlinesturKey Corendon Airlines,s
23、unExpressuae Emirates,Etihad Airwaysusa Hawaiian Airlines,spirit Airlines,sun Country,southwest Airlines,United AirlinesmOzambIque LAM Mozambique AirlinesAir China,Air Macau,China Eastern Airlines,China Eastern Yunnan,China southern Airlines,China United,Dalian Airlines,Hainan Airlines,shanghai Airl
24、ines,sichuan Airlines,spring Airlines,Xiamen AirlineschINa t w e lv esteven f.uDvAr-h ZY ChAirMAn&Chief exeCutive offiCerJohn l.Plueger PresiDent&Chief oPer Ating offiCer t h i r t e e nTO OuR fELLOw shAREhOLdERs2013 was a year of continued dynamic growth in our business.we expanded our global airli
25、ne customer base,increased our future contracted aircraft delivery stream,and broadened our financing sources.AlC grew all of its key operating metrics in 2013 and punctuated the year by achieving the companys highest pretax operating profit margin to date of 37.3%in the fourth quarter.we added 13 n
26、ew airline customers to finish the year with 79 airline clients across 47 countries.our fleet remains very young with long leases to a globally diversified group of airlines,which strongly enhances the companys credit profile.All of the aircraft in our fleet are leased with a stable overall portfoli
27、o lease rate factor.weve concluded all air-craft placements scheduled for delivery in 2014 and 2015 at profitable levels and we are now focused on 2016 and beyond.Another year of global passenger traffic growth over 5%has generated strong demand for our future aircraft deliveries and positions the c
28、ompany very well to continue to help airlines modernize aging aircraft fleets.while the global economy has continued to work through a recovery from the financial crisis,the airline industry has been resilient.efforts to restructure or merge have allowed airlines to cut costs,rationalize capacity,an
29、d mod-ernize their fleets over the last few years and we see this trend continuing.As a result,in 2013 airline operating performances were generally improved.our seasoned manage-ment team is highly experienced in bringing fleet and other solutions to help mitigate the economic,political,currency,and
30、 operating challenges faced by our customers and work with them to build healthy airlines better able to withstand future headwinds.we have responded to the needs of our airline customers by continuing to deliver new aircraft from our pipeline,consistent with our long-term fleet growth plan.in febru
31、ary,we concluded an order for 25 firm A350 xwB family aircraft,consisting of 20 A350-900s and five A350-1000s,and options for five additional A350-1000s.Also in february,we placed an order for 10 additional Boeing 777-300ers adding to five previously ordered aircraft,all 15 of which have been placed
32、 on long-term leases.At the le Bourget Airshow in June,we announced our launch order for 30 Boeing 787-10 and three additional B787-9 aircraft.we now have 327 aircraft on order through 2023,which further secures a consistent stream of aircraft delivery positions that our customers demand.these aircr
33、aft are the most modern narrowbody and widebody aircraft manufactured by Boeing and Airbus that will dominate the skies for the coming decades.we control one of the largest order books in the aircraft leasing industry and are pleased with the volume pricing that we have obtained as one of the larges
34、t customers for Boeing and Airbus.when combined with favorable funding costs and a strong balance sheet,we are able to deliver competitive lease terms to our airline customers and generate solid returns for our shareholders.Consistent with our view of the healthy,long-term prospects for air travel,i
35、n 2013 we saw the global banking industry return to a favorable view of the airline sector.Additionally,this year the capital markets have allowed a wide array of companies in our industry to access the markets.we view this positively as a broadening universe of investors under-stand the desirabilit
36、y and value in aircraft leasing and aircraft assets.these new sources are helping to fill the funding gap that exists between the capital base of current lessors and the amount of capital required to finance the leased aircraft in the global fleet.f o u r t e e n2013 provided two significant develop
37、ments to our financial profile,when we received a BBB-corporate credit rating from standard and Poors and an A-corporate credit rating from Kroll Bond rating Agency.As an investment grade company,we have significantly expanded the breadth and depth of financing sources available to us.one of the str
38、ategic goals of AlC remains to finance the company primarily through unsecured debt issuances.we believe that to achieve superior results,an investment grade profile is necessary for the best access to capital through cycles and optimal positioning when opportunities present themselves.in our indust
39、ry,AlC has generated excellent credit metrics,based on a globally diversified portfolio of aircraft and airline customers,conservative balance sheet,young fleet,long leases and leading financial performance.we believe these met-rics will allow for ratings upgrades in the future.owing to the financia
40、l success of the company since inception four years ago,in 2013 our Board instituted a quarterly dividend on our outstanding common stock and increased the amount of the dividend during the year.the dividend helps to enhance shareholder returns and broadens our investor base,yet allows for the conti
41、nued strong growth of the company.we are grateful to our dedicated team of experienced professionals at AlC,our loyal air-line customers,and our bankers and investors who have shared our vision to build the best aircraft leasing company in the world.respectfully yours,s t e v e n f.u D vA r-h Z Y C
42、h A i r M A n&C h i e f e x e C u t i v e o f f i C e rJ o h n l.P l u e g e r P r e s i D e n t&C h i e f o P e r At i n g o f f i C e r 1 5Financial Review 2013 Review 16 Report of Independent Registered Public Accounting Firm 43 Consolidated Balance Sheets 44 Consolidated Statements of Income 45
43、Consolidated Statements of Shareholders Equity 46 Consolidated Statements of Cash Flows 47 Notes to Consolidated Financial Statements 49 Selected Financial Data 70 Leadership Team 74Table of Contents f i f t e e n2013 Review S iX te e nBUSINESSOverviewAir Lease Corporation(the“Company,”“ALC,”“we,”“o
44、ur”or“us”),is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer,Steven f.Udvar-Hzy.We are principally engaged in purchasing new commercial jet transport aircraft directly from the manufacturers,such as the Boeing Company(“Boeing”)and Airbus S.A.S.(“Airbus”),and
45、 leasing those aircraft to airlines throughout the world to generate attractive returns on equity.in addition to our leasing activities,we sell aircraft from our operating lease portfolio to third parties,including other leas-ing companies,financial services companies and airlines.We also provide fl
46、eet management services to investors and owners of aircraft portfolios for a management fee.We currently have relationships with over 200 airlines across 70 countries.We operate our business on a global basis,providing aircraft to airline customers in every major geographical region,including market
47、s such as Asia,the Pacific Rim,Latin America,the Middle east and eastern europe.Many of these markets are experiencing increased demand for passenger airline travel and have lower market saturation than more mature markets such as north America and Western europe.We expect that these markets will al
48、so present significant replacement opportunities in upcoming years as some airlines in these markets look to replace aging aircraft with new,modern technology,fuel-efficient jet aircraft.An important focus of our strategy is meeting the needs of this replacement market.Airlines in some of these mark
49、ets have fewer financing alternatives,enabling us to command relatively higher lease rates compared to those in more mature markets.We mitigate the risks of owning and leasing aircraft through careful management and diversification of our leases and lessees by geography,lease term,and aircraft age a
50、nd type.We believe that diversification of our operating lease portfolio reduces the risks associated with individual lessee defaults and adverse geopolitical and regional economic events.We mitigate the risks associated with cyclical variations in the airline industry by managing customer concen-tr
51、ations and lease maturities in our operating lease portfolio to minimize periods of concentrated lease expirations.in order to maximize residual values and minimize the risk of obsolescence,our strategy is to own an aircraft during the first third of its 25-year useful life.As of December 31,2013,we
52、 owned 193 aircraft in our operating lease portfolio and we leased the aircraft to a glob-ally diversified customer base comprised of 79 airlines in 47 countries.the weighted-average lease term remaining of our operating lease portfolio was 7.1 years and the weighted-average age of our fleet was 3.7
53、 years.During 2013 we entered into commitments to purchase up to 73 additional aircraft from Airbus and Boeing.from Airbus,we agreed to purchase up to 30 A350 XWB family aircraft,five of which are subject to reconfirmation.from Boeing,we agreed to purchase an additional 10 Boeing 777-300eR aircraft,
54、30 787-10 aircraft and three additional 787-9 aircraft.At December 31,2013,we had,in the aggregate,327 aircraft on order with Boeing,Airbus and Avions de transport Rgional(“AtR”)for delivery through 2023,with an estimated aggregate purchase price of$27.3 billion,making us one of the largest customer
55、s of Boeing and Airbus.As of December 31,2013,all of our 193 aircraft were leased and our airline customers are obligated to make$6.2 bil-lion in minimum future rental payments over the non-cancelable lease term.in addition,we have signed lease agree-ments for 98 aircraft that we ordered from the ma
56、nufacturers for delivery through 2023,and our airline customers are contractually obligated to make$7.2 billion in minimum future rental payments over the non-cancelable lease term.in the aggregate,between aircraft we own in our operating lease portfolio and those that we have leased from our orderb
57、ook,our customers are contractually obligated to make$13.4 billion in minimum future rental payments.SeVenteenWe finance the purchase of aircraft and our business with available cash balances,internally generated funds,includ-ing aircraft sales and trading activity,and debt financings.Our debt finan
58、cing strategy is focused on raising unsecured debt in the global bank and capital markets,with a limited utilization of export credit financing.in 2013,the Company received two corporate credit ratings lowering our cost of funds and broadening our access to attractively priced capital.Since our ince
59、ption in 2010,we have developed a 43-member,globally diversified banking group,which has provided us in excess of$4.4 billion in financing,and we have raised$3.3 billion in financing in the capital markets.We ended 2013 with total debt outstanding of$5.9 billion,of which 62.0%was at a fixed rate and
60、 73.5%of which was unsecured,with a composite cost of funds of 3.60%.in 2013,we had total revenues of$858.7 million,representing an increase of$202.9 million or 30.9%compared to 2012.this is comprised of rental revenues on our operating lease portfolio of$836.5 million and aircraft sales,trading and
61、 other revenue of$22.2 million.Our composite cost of funds as of December 31,2013 decreased by 0.34%com-pared to the prior year.We recorded earnings before income taxes of$293.4 million in 2013,an increase of$89.5 million or 43.9%compared to 2012,for a pretax profit margin of 34.2%.Our operating per
62、formance is principally driven by the growth of our fleet,the terms of our leases and the interest rates on our indebtedness,supplemented by the gains of our aircraft sales and trading activities.Operations to DateCurrent FleetOur fleet is principally comprised of fuel-efficient and newer technology
63、 aircraft,consisting of narrowbody aircraft,such as the Boeing 737-700/800,the Airbus A320/321 and the embraer e190,select widebody aircraft,such as the Boeing 777-300eR and the Airbus A330-200/300,and the AtR 72-600 turboprop aircraft.As of December 31,2013,we owned 193 aircraft,comprised of 146 na
64、rrowbody jet aircraft,31 widebody jet aircraft and 16 turboprop aircraft,with a weighted-average age of 3.7 years.As of December 31,2012,we owned 155 aircraft,comprised of 118 narrowbody jet aircraft,27 widebody jet aircraft and 10 turboprop aircraft,with a weighted-average age of 3.5 years.Geograph
65、ic DiversificationOver 90%of our aircraft are operated internationally.the following table sets forth the dollar amount and percentage of our rental of flight equipment revenues attributable to the respective geographical regions based on each airlines principal place of business:Year ended December
66、 31,2013Year ended December 31,2012Year ended December 31,2011RegionAmount of Rental Revenue%of totalAmount of Rental Revenue%of totalAmount of Rental Revenue%of total(dollars in thousands)Asia/Pacific$314,90837.6%$215,53733.4%$93,23728.0%europe300,76135.9%253,37639.2%151,56645.6%Central America,Sou
67、th America and Mexico107,85712.9%84,34113.1%30,7149.2%U.S.and Canada57,3666.9%53,2018.2%39,35011.8%the Middle east and Africa55,6246.7%39,3986.1%17,8525.4%total$836,516100.0%$645,853100.0%$332,719100.0%e iG H te e nthe following table sets forth the regional concentration of our aircraft portfolio b
68、ased on net book value as of December 31,2013,2012 and 2011:December 31,2013December 31,2012December 31,2011Regionnet Book Value%of totalnet Book Value%of totalnet Book Value%of total(dollars in thousands)Asia/Pacific$3,317,11843.6%$2,245,00235.9%$1,355,43232.0%europe2,656,81634.9%2,398,53138.4%1,78
69、2,94942.1%Central America,South America and Mexico829,93010.9%788,18912.6%515,14512.2%U.S.and Canada436,6535.7%457,5467.3%386,1019.1%the Middle east and Africa372,6184.9%362,5955.8%197,7894.6%total$7,613,135100.0%$6,251,863100.0%$4,237,416100.0%At December 31,2013,2012 and 2011,we leased aircraft to
70、 customers in the following regions:December 31,2013December 31,2012December 31,2011Regionnumber of Customers(1)%of totalnumber of Customers(1)%of totalnumber of Customers(1)%of totalAsia/Pacific3139.2%2840.6%2240.0%europe2126.6%1724.6%1323.6%Central America,South America and Mexico1215.2%913.0%814.
71、6%U.S.and Canada810.1%811.6%712.7%the Middle east and Africa78.9%710.2%59.1%total79100.0%69100.0%55100.0%(1)A customer is an airline with its own operating certificate.in 2013,one country represented at least 10%of our rental of flight equipment revenue.for the year ended December 31,2013,China attr
72、ibuted for$129.8 million or 15.5%of our rental of flight equipment revenue.in 2012,three countries represented at least 10%of our rental of flight equipment revenue.for the year ended December 31,2012,China attributed for$75.5 million or 11.7%of our rental of flight equipment revenue,italy attribute
73、d for$71.0 million or 11.0%of our rental of flight equipment revenue and france attributed for$67.4 million or 10.4%of our rental of flight equip-ment revenue.in 2011,two countries represented at least 10%of our rental of flight equipment revenue.for the year ended December 31,2011,China attributed
74、for$39.6 million or 11.9%of our rental of flight equipment revenue and france attributed for$62.2 million or 18.7%of our rental of flight equipment revenue.in 2013,no individual airline represented at least 10%of our rental of flight equipment revenue.in 2012,one airline represented at least 10%of o
75、ur rental of flight equipment revenue.for the year ended December 31,2012,Alitalia attributed for$71.0 million or 11.0%of our rental of flight equipment revenue.in 2011,one airline represented at least 10%of our rental of flight equipment revenue.for the year ended December 31,2011,Air france attrib
76、uted for$45.4 million or 13.7%of our rental of flight equipment revenue.n i n e t e e nAircraft Acquisition StrategyWe operate our business on a global basis,leasing aircraft to airline customers in every major geographical region of the world.Our primary strategy is to order new aircraft in bulk di
77、rectly from the manufacturers to minimize the acquisi-tion price.We seek to acquire the most highly in demand and widely distributed,modern technology,fuel-efficient narrowbody and widebody commercial jet transport aircraft.When placing new aircraft orders with the manufactur-ers,we strategically ta
78、rget the replacement of aging aircraft with modern technology aircraft.Additionally,we look to supplement our order pipeline with opportunistic purchases of aircraft in the secondary market and participate in sale-leaseback transactions with airlines.Prior to ordering aircraft,we evaluate the market
79、 for specific types of aircraft.We consider the overall demand for the aircraft in the marketplace based on our deep knowledge of the aviation industry and our customer relationships.it is important to assess the airplanes economic viability,the operating performance characteristics,engine variant o
80、ptions,intended utilization by our customers,and which aircraft types it will replace or compete with in the global market.Additionally,we study the effects of global airline passenger traffic growth in order to determine the likely demand for our new aircraft.for new aircraft deliveries,we source m
81、any components separately,which include seats,safety equipment,avionics,galleys,cabin finishes,engines and other equipment.Oftentimes we are able to achieve lower pricing through direct bulk purchase contracts with the component manufacturers than would be achievable if the airframe manufacturers so
82、urced the components for the airplane.Manufacturers such as Boeing and Airbus install this buyer-furnished equip-ment in our aircraft during the final assembly process at their facilities.With this purchasing strategy,we are able to meet specific customer configuration requirements and lower the tot
83、al acquisition cost of the aircraft.Aircraft Leasing Strategythe airline industry is a complex industry with constantly evolving competition,code shares(where two or more air-lines share the same flight),alliances and passenger traffic patterns.this requires frequent updating and flexibility within
84、an airlines fleet.the operating lease allows airlines to effectively adapt and manage their fleets through varying market conditions without bearing the full financial risk associated with these capital-intensive assets with a 25-year useful life.this fleet flexibility enables airlines to more effec
85、tively compete in their respective markets.We work closely with our airline customers throughout the world to help optimize their long-term aircraft fleet strategies.We work to mitigate the risks of owning and leasing aircraft through careful management of our fleet,including man-aging customer conc
86、entrations by geography and region,staggering lease maturities,balancing aircraft type expo-sures and maintaining a young fleet age.We believe that diversification of our operating lease portfolio reduces the risks associated with individual customer defaults and the impact of adverse geopolitical a
87、nd regional economic events.We work to mitigate the risks associated with cyclical variations in the airline industry by entering into long-term leases and staggering our lease maturities.in order to maximize residual values and minimize the risk of obsolescence,our strategy is to own aircraft for t
88、he first third of its 25-year useful life.tW e n tYOur management team identifies prospective customers based upon industry knowledge and long-standing relation-ships.Prior to leasing an aircraft,we evaluate the competitive positioning of the airline,the strength and quality of the management team,a
89、nd the financial performance of the airline.Management obtains and reviews relevant business materials from all prospective customers before entering into a lease agreement.Under certain circumstances,the customer may be required to obtain guarantees or other financial support from a financial insti
90、tution.We work closely with our existing customers and potential lessees to develop customized lease structures that address their specific needs.We typically enter into a lease agreement 18 to 36 months in advance of the delivery of a new aircraft from our order pipeline.Once the aircraft has been
91、delivered and operated by the airline,we look to remarket the aircraft and sign a follow-on lease six to 12 months ahead of the scheduled expiry of the initial lease term.Our leases typically contain the following key provisions:our leases are primarily structured as operating leases,whereby we reta
92、in the residual rights to the aircraft;our leases are triple net leases,whereby the lessee is responsible for all operating costs including taxes,insurance and aircraft maintenance;our leases typically require all payments be made in U.S.dollars;our leases are typically for fixed rates and terms;our
93、 leases typically require cash security deposits and maintenance reserve payments;and our leases contain provisions which require payment whether or not the aircraft is operated,irrespective of the circumstances.the lessee is responsible for compliance with applicable laws and regulations with respe
94、ct to the aircraft.We require our lessees to comply with the standards of either the U.S.federal Aviation Administration(“fAA”)or its equivalent in foreign jurisdictions.As a function of these laws and the provisions in our lease contracts,the lessees are responsible to perform all maintenance of th
95、e aircraft and return the aircraft and its components in a specified return condition.Generally,we receive a cash deposit and maintenance reserves as security for the lessees performance of obligations under the lease and the condition of the aircraft upon return.in addition,most leases contain exte
96、nsive provisions regarding our remedies and rights in the event of a default by a lessee.the lessee generally is required to continue to make lease payments under all circumstances,including periods during which the aircraft is not in operation due to maintenance or grounding.Some foreign countries
97、have currency and exchange laws regulating the international transfer of currencies.When necessary,we may require,as a condition to any foreign transaction,that the lessee or purchaser in a foreign country obtain the necessary approvals of the appropriate government agency,finance ministry or centra
98、l bank for the remit-tance of all funds contractually owed in U.S.dollars.We attempt to minimize our currency and exchange risks by negotiating the designated payment currency in our leases to be U.S.dollars.to meet the needs of certain of our airline customers,we have agreed to accept certain of ou
99、r lease payments in a foreign currency.After we agree to the rental payment currency with an airline,the negotiated currency typically remains for the term of the lease.We may enter into contracts to mitigate our foreign currency risk,but we expect that the economic risk arising from foreign currenc
100、y denominated leases will be insignificant to us.We may,in connection with the lease of used aircraft,agree to contribute specific additional amounts to the cost of certain first major overhauls or modifications,which usually reflect the usage of the aircraft prior to the commence-ment of the lease,
101、and which are covered by the prior operators usage fees.We may be obligated under the leases to make reimbursements of maintenance reserves previously received to lessees for expenses incurred for certain planned major maintenance.We also,on occasion,may contribute towards aircraft modifications and
102、 recover any such costs over the life of the lease.t We n t Y-O n eMonitoringDuring the lease term we closely follow the operating and financial performance of our lessees.We maintain a high level of communication with the lessee and frequently evaluate the state of the market in which the lessee op
103、erates,including the impact of changes in passenger air travel and preferences,emerging competition,new government regulations,regional catastrophes and other unforeseen shocks that are relevant to the airlines market.this enables us to identify lessees that may be experiencing operating and financi
104、al difficulties.this identification assists us in assessing the lessees ability to fulfill its obligations under the lease.this monitoring also identifies candidates,where appropriate,to restructure the lease prior to the lessees insolvency or the initiation of bankruptcy or similar proceed-ings.Onc
105、e an insolvency or bankruptcy occurs we typically have less control over,and would most likely incur greater costs in connection with,the restructuring of the lease or the repossession of the aircraft.During the life of the lease,situations may lead us to restructure leases with our lessees.When we
106、repossess an air-craft leased in a foreign country,we generally expect to export the aircraft from the lessees jurisdiction.in some very limited situations,the lessees may not fully cooperate in returning the aircraft.in those cases,we will take legal action in the appropriate jurisdictions,a proces
107、s that could ultimately delay the return and export of the aircraft.in addition,in connection with the repossession of an aircraft,we may be required to pay outstanding mechanics liens,airport charges,and navigation fees and other amounts secured by liens on the repossessed aircraft.these charges co
108、uld relate to other aircraft that we do not own but were operated by the lessee.RemarketingOur lease agreements are generally structured to require lessees to notify us nine to 12 months in advance of the leases expiration if a lessee desires to renew or extend the lease.Requiring lessees to provide
109、 us with such advance notice provides our management team with an extended period of time to consider a broad set of alternatives with respect to the aircraft,including assessing general market and competitive conditions and preparing to remarket or sell the aircraft.if a lessee fails to provide us
110、with notice,the lease will automatically expire at the end of the term,and the lessee will be required to return the aircraft pursuant to the conditions in the lease.Our leases contain detailed provisions regarding the required condition of the aircraft and its components upon redelivery at the end
111、of the lease term.Aircraft Sales&Trading StrategyOur strategy is to maintain a portfolio of young aircraft with a widely diversified customer base.in order to achieve this profile,we primarily order new planes directly from the manufacturers,place them on long-term leases,and sell the aircraft when
112、they near the end of the first third of their 25-year economic useful lives.We typically sell aircraft that are currently operated by an airline with multiple years of lease term remaining on the contract,in order to achieve the maximum disposition value of the aircraft.Buyers of the aircraft may in
113、clude leasing companies,financial institutions and airlines.We also buy and sell aircraft on an opportunistic basis for trading profits.Additionally,we may provide management services of the aircraft asset to the buyer for a fee.Financing StrategyWe finance the purchase of aircraft and our business
114、with available cash balances,internally generated funds,includ-ing aircraft sales and trading activity,and debt financings.from our inception in 2010,we have structured the Company to be an investment grade company and our debt financing strategy has focused on funding our business on an unse-cured
115、basis.Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another.We may,to a limited extent,utilize export credit financing in support of our new aircraft deliveries.tW e n tY-tWOthe Company received a corporate credit rating of A
116、from Kroll Bond Ratings in May 2013,followed by a second investment grade corporate credit rating of BBB from S&P in August 2013.Our investment grade credit ratings fur-ther lowered our cost of funds and broadened our access to attractively priced capital.it also strengthened our ability to achieve
117、our long-term debt financing strategy of continuing to raise unsecured debt in the global bank and capital markets to further increase our unsecured debt as a percentage of total debt.InsuranceWe require our lessees to carry those types of insurance that are customary in the air transportation indus
118、try,includ-ing comprehensive liability insurance,aircraft all-risk hull insurance and war-risk insurance covering risks such as hijacking,terrorism(but excluding coverage for weapons of mass destruction and nuclear events),confiscation,expropriation,seizure and nationalization.We generally require a
119、 certificate of insurance from the lessees insurance broker prior to delivery of an aircraft.Generally,all certificates of insurance contain a breach of warranty endorsement so that our interests are not prejudiced by any act or omission of the lessee.Lease agreements generally require hull and liab
120、ility limits to be in U.S.dollars,which are shown on the certificate of insurance.insurance premiums are to be paid by the lessee,with coverage acknowledged by the broker or carrier.the territorial coverage,in each case,should be suitable for the lessees area of operations.We generally require that
121、the certifi-cates of insurance contain,among other provisions,a provision prohibiting cancellation or material change without at least 30 days advance written notice to the insurance broker(who would be obligated to give us prompt notice),except in the case of hull war insurance policies,which custo
122、marily only provide seven days advance written notice for cancellation and may be subject to shorter notice under certain market conditions.furthermore,the insurance is primary and not contributory,and we require that all insurance carriers be required to waive rights of subrogation against us.the s
123、tipulated loss value schedule under aircraft hull insurance policies is on an agreed-value basis acceptable to us and usually exceeds the book value of the aircraft.in cases where we believe that the agreed value stated in the lease is not sufficient,we make arrangements to cover such deficiency,whi
124、ch would include the purchase of additional“total Loss Only”coverage for the deficiency.Aircraft hull policies generally contain standard clauses covering aircraft engines.the lessee is required to pay all deductibles.furthermore,the hull war policies generally contain full war-risk endorsements,inc
125、luding,but not limited to,confiscation(where available),seizure,hijacking and similar forms of retention or terrorist acts.the comprehensive liability insurance listed on certificates of insurance generally include provisions for bodily injury,property damage,passenger liability,cargo liability and
126、such other provisions reasonably necessary in commercial passenger and cargo airline operations.We expect that such certificates of insurance list combined comprehensive single liability limits of not less than$500.0 million for Airbus and Boeing aircraft and$200.0 million for embraer S.A.(“embraer”
127、)and AtR aircraft.As a standard in the industry,airline operators policies contain a sublimit for third-party war-risk liability in the amount of$50.0 million.We require each lessee to purchase higher limits of third-party war-risk liability or obtain an indemnity from its respective government.in l
128、ate 2005,the international aviation insurance market unilaterally introduced exclusions for physical damage to air-craft hulls caused by dirty bombs,bio-hazardous materials and electromagnetic pulsing.exclusions for the same type of perils could be introduced into liability policies.Separately,we pu
129、rchase contingent liability insurance and contingent hull insurance on all aircraft in our fleet and maintain other insurance covering the specific needs of our business operations.We believe our insurance is adequate both as to coverages and amounts.t W e n t Y-t H R e eWe cannot assure investors t
130、hat our lessees will be adequately insured against all risks,that lessees will at all times comply with their obligations to maintain insurance,that any particular claim will be paid,or that lessees will be able to obtain adequate insurance coverage at commercially reasonable rates in the future.We
131、maintain key man life insurance policies on our Chairman and CeO and our President and Chief Operating Officer.each policy is in the amount of$2.0 million,with the proceeds payable to us and permitted to be used for general corporate purposes.Competitionthe leasing,remarketing and sale of aircraft i
132、s highly competitive.We face competition from aircraft manufacturers,banks,financial institutions,other leasing companies,aircraft brokers and airlines.Some of our competitors may have greater operating and financial resources and access to lower capital costs than we have.Competition for leasing tr
133、ansactions is based on a number of factors,including delivery dates,lease rates,lease terms,other lease provisions,aircraft condition and the availability in the marketplace of the types of aircraft required to meet the needs of airline customers.Competition in the purchase and sale of used aircraft
134、 is based principally on the availability of used aircraft,price,the terms of the lease to which an aircraft is subject and the creditworthiness of the lessee,if any.Government Regulationthe air transportation industry is highly regulated.We do not operate commercial aircraft,and thus may not be dir
135、ectly subject to many industry laws and regulations,such as regulations of the U.S.Department of State(the“DOS”),the U.S.Department of transportation,or their counterpart organizations in foreign countries regarding the operation of aircraft for public transportation of passengers and property.As di
136、scussed below,however,we are sub-ject to government regulation in a number of respects.in addition,our lessees are subject to extensive regulation under the laws of the jurisdictions in which they are registered or operate.these laws govern,among other things,the registration,operation,maintenance a
137、nd condition of the aircraft.We are required to register our aircraft with an aviation authority mutually agreed upon with our lessee.each aircraft registered to fly must have a Certificate of Airworthiness,which is a certificate demonstrating the aircrafts compliance with applicable government rule
138、s and regulations and that the aircraft is considered airworthy.each airline we lease to must have a valid operation certificate to operate our aircraft.Our lessees are obligated to maintain the Certificates of Airworthiness for the aircraft they lease.Our involvement with the civil aviation authori
139、ties of foreign jurisdictions consists largely of requests to register and deregister our aircraft on those countries registries.We are also subject to the regulatory authority of the DOS and the U.S.Department of Commerce(the“DOC”)to the extent such authority relates to the export of aircraft for l
140、ease and sale to foreign entities and the export of parts to be installed on our aircraft.We may be required to obtain export licenses for parts installed in aircraft exported to foreign countries.the DOC and the U.S.Department of the treasury(through its Office of foreign Assets Control)impose rest
141、rictions on the operation of U.S.-made goods,such as aircraft and engines,in sanctioned countries,as well as on the ability of U.S.companies to conduct business with entities in those countries.the U.S.Patriot Act of 2001(the“Patriot Act”)prohibits financial transactions by U.S.persons,including U.S
142、.individuals,entities and charitable orga-nizations,with individuals and organizations designated as terrorists and terrorist supporters by the U.S.Secretary of State or the U.S.Secretary of the treasury.the U.S.Customs and Border Protection,a law enforcement agency of the U.S.Department of Homeland
143、 Security,enforces regulations related to the import of aircraft into the United States for maintenance or lease and the importation of parts into the U.S.for installation.tW e n tY-fO U RJurisdictions in which aircraft are registered as well as jurisdictions in which they operate may impose regulat
144、ions relating to noise and emission standards.in addition,most countries aviation laws require aircraft to be maintained under an approved maintenance program with defined procedures and intervals for inspection,maintenance and repair.to the extent that aircraft are not subject to a lease or a lesse
145、e is not in compliance,we are required to comply with such requirements,possibly at our own expense.EmployeesAs of December 31,2013,we had 63 full-time employees.On average,our senior management team has approxi-mately 23 years of experience in the aviation industry.none of our employees are represe
146、nted by a union or collective bargaining agreements.Access to Our InformationWe file annual,quarterly,current reports,proxy statements and other information with the Securities and exchange Commission(the“SeC”).We make our public SeC filings available,at no cost,through our website at as soon as rea
147、sonably practicable after the report is electronically filed with,or furnished to,the SeC.the information contained on or connected to our website is not incorporated by reference into this Annual Report and should not be considered part of this or any other report filed with the SeC.We will also pr
148、ovide these reports in electronic or paper format free of charge upon written request made to investor Relations at 2000 Avenue of the Stars,Suite 1000n,Los Angeles,California 90067.Our SeC filings are also available free of charge on the SeCs website at www.sec.gov.the public may also read and copy
149、 any document we file with the SeC at the SeCs public reference room located at 100 f Street ne,Washington,DC 20549.Please call the SeC at 1-800-SeC-0330 for further information on the operation of the public reference room.t W e n t Y-f i V eMARKET FOR REGISTRANTS COMMON EQUITY,RELATED STOCKHOLDER
150、MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarket InformationOur Class A Common Stock has been quoted on the new York Stock exchange(the“nYSe”)under the symbol“AL”since April 19,2011.Prior to that time,there was no public market for our stock.As of December 31,2013,there were 101,822,676 share
151、s of Class A Common Stock outstanding held by approximately 187 holders of record.On february 26,2014 the closing price of our Class A Common Stock was$35.14 per share as reported by the nYSe.the table below sets forth for the indicated periods the high and low sales prices for our Class A Common St
152、ock as reported on the nYSe.fiscal Year 2013 Quarters ended:HighLowMarch 31,2013$29.36$21.89June 30,2013$30.58$26.18September 30,2013$28.67$25.80December 31,2013$33.29$27.73fiscal Year 2012 Quarters ended:HighLowMarch 31,2012$26.47$23.10June 30,2012$25.00$18.66September 30,2012$22.79$18.45December 3
153、1,2012$23.17$20.13Dividendsin february 2013,our Board of Directors adopted a cash dividend policy pursuant to which we intended to pay quar-terly cash dividends of$0.025 per share on our outstanding common stock.in november 2013,the Company raised its quarterly cash dividend by 20%to$0.03 per share
154、on our outstanding common stock.there were no dividends declared or paid during 2012 or 2011.While the Board of Directors currently expects to continue paying a quarterly cash dividend of$0.03 per share for the foreseeable future,the cash dividend policy can be changed at any time at the discretion
155、of the Board of Directors.tW e n tY-S iXStock Authorized for Issuance Under Equity Compensation PlansSet forth below is certain information about the Class A Common Stock authorized for issuance under the Companys equity compensation plan.Plan Categorynumber of Securities to be issued Upon exercise
156、of Outstanding Options,Warrants and RightsWeighted-Average exercise Price of Outstanding Options,Warrants and Rightsnumber of Securities Remaining Available for future issuance Under equity Compensation Plans(excluding securities reflected in column(a)(a)(b)(c)equity compensation plans approved by s
157、ecurity holders3,625,783$20.361,574,767equity compensation plans not approved by security holderstotal3,625,783$20.361,574,767Performance Graphthe graph below compares the cumulative return since April 19,2011 of the Companys Class A Common Stock,the S&P Midcap index,the Russell 2000 index and a cus
158、tomized peer group.the peer group consists of three compa-nies:Aircastle Limited(nYSe:AYR),AerCap Holdings nV(nYSe:AeR)and fLY Leasing Limited(nYSe:fLY).the peer group investment is weighted by market capitalization as of April 19,2011,and is adjusted monthly.An invest-ment of$100,with reinvestment
159、of all dividends,is assumed to have been made in our Class A Common Stock,in the peer group and in the S&P Midcap index and in the Russell 2000 index on April 19,2011,and the relative performance of each is tracked through December 31,2013.the stock price performance shown in the graph is not necess
160、arily indicative of future stock price performance.COMPARiSOn Of 32-MOntH CUMULAtiVe tOtAL RetURnAssumes initial investment of$100 December 31,2013$250200150100504/19/20116/30/20119/30/201112/31/20113/31/20126/30/20129/30/201212/31/20123/31/20136/30/20139/30/201312/31/2013Air Lease CorporationS&P Mi
161、dcap 400 IndexRussell 2000 Index Peer Group Company Purchases of Stockthe Company did not purchase any shares of its Class A Common Stock during 2013.t W e n t Y-S e V e nMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOverviewAir Lease Corporation is a leading ai
162、rcraft leasing company that was founded by aircraft leasing industry pioneer Steven f.Udvar-Hzy.We are principally engaged in purchasing new commercial jet transport aircraft directly from the manufacturers,such as Boeing and Airbus,and leasing those aircraft to airlines throughout the world to gene
163、rate attractive returns on equity.in addition to our leasing activities,we sell aircraft from our operating lease portfolio to third parties,including other leasing companies,financial services companies and airlines.We also provide fleet man-agement services to investors and owners of aircraft port
164、folios for a management fee.Our operating performance is driven by the growth of our fleet,the terms of our leases,the interest rates on our indebtedness and the terms of our aircraft sales and trading activities.We ended 2013 with 193 aircraft in our operating lease portfolio and an additional 327
165、aircraft on order with Boeing,Airbus and AtR.Our operating lease portfolio of 193 aircraft as of December 31,2013 is comprised of 146 single-aisle narrowbody jet aircraft,31 twin-aisle widebody jet aircraft and 16 turboprop aircraft,with a weighted-average age of 3.7 years.We ended 2012 with 155 air
166、craft,comprised of 118 single-aisle jet aircraft,27 twin-aisle widebody aircraft and 10 turboprop aircraft,with a weighted-average age of 3.5 years.Our fleet grew by 20.6%based on net book value to$7.6 billion as of December 31,2013 compared to$6.3 billion as of December 31,2012.the acquisition and
167、lease of 40 additional aircraft aggregating$1.7 billion led to an increase of$190.6 million or 30%in our rental revenue to$836.5 million for the year ended December 31,2013,compared to$645.9 million for the year ended December 31,2012.Due to the timing of aircraft deliveries the full impact on renta
168、l revenue for aircraft acquired during a given period will be reflected in subsequent periods.We recorded earnings before income taxes of$293.4 million for the year ended December 31,2013 compared to$204.0 million for the year ended December 31,2012,an increase of$89.4 million or 43.8%.Our profitabi
169、lity increased year over year as our pretax profit margin increased to 34.2%for the year ended December 31,2013,compared to 31.1%for the year ended December 31,2012.Our earnings per share also increased as we recorded diluted earnings per share of$1.80 for the year ended December 31,2013,compared to
170、$1.28 for the year ended December 31,2012,an increase of 40.6%.As of December 31,2013,all of our 193 aircraft were leased and our airline customers are obligated to make$6.2 billion in minimum future rental payments over the non-cancelable lease term.in addition,we have signed lease agreements for 9
171、8 aircraft that we ordered from the manufacturers for delivery through 2023,and our airline customers are con-tractually obligated to make$7.2 billion in minimum future rental payments over the non-cancelable lease term.in the aggregate,between aircraft we own in our operating lease portfolio and th
172、ose that we have leased from our orderbook,our customers are contractually obligated to make$13.4 billion in minimum future rental payments.During 2013,the Company entered into commitments to acquire up to 78 additional aircraft from Airbus,Boeing and AtR.from Airbus,we agreed to purchase up to 30 A
173、350-900/1000 family aircraft,five of which are subject to recon-firmation.from Boeing,we agreed to purchase an additional 10 Boeing 777-300eR aircraft,30 787-10 aircraft and three additional 787-9 aircraft.from AtR,we agreed to purchase five additional AtR 72-600 aircraft.Deliveries of these aircraf
174、t are scheduled to commence in 2014 and continue through 2023.tW e n tY-e iG H tDuring 2013,the Company received two investment grade corporate credit ratings,which reduced our financing costs and further broadened our access to attractively priced capital.Our financing plans remain focused on raisi
175、ng unse-cured debt in the global bank and capital markets,reinvesting cash flow from operations and,to a limited extent,export credit financing.During 2013,we entered into additional unsecured debt facilities aggregating$2.4 billion.the Companys unsecured debt as a percentage of total debt increased
176、 to 73.5%as of December 31,2013 from 60.2%as of December 31,2012.the Companys fixed-rate debt as a percentage of total debt increased to 62.0%as of December 31,2013 from 53.9%as of December 31,2012.in addition,we reduced our composite cost of funds to 3.60%as of December 31,2013 from 3.94%as of Dece
177、mber 31,2012.Our FleetWe have continued to build one of the worlds youngest operating lease portfolios,comprised of the most fuel-efficient commercial jet transport aircraft.During the year ended December 31,2013,we took delivery of 34 aircraft from our new order pipeline supplemented by six deliver
178、ies of used aircraft acquired in the secondary market,we sold an aircraft and we had an insured loss of one aircraft,ending the year with a total of 193 aircraft.Our weighted-average fleet age and weighted-average remaining lease term as of December 31,2013 were 3.7 years and 7.1 years,respectively.
179、We also managed four aircraft as of December 31,2013.Portfolio metrics of our fleet as of December 31,2013 and 2012 are as follows:December 31,2013December 31,2012(dollars in thousands)fleet size193155Weighted-average fleet age(1)3.7 years3.5 yearsWeighted-average remaining lease term(1)7.1 years6.8
180、 yearsAggregate net book value$7,613,135$6,251,863(1)Weighted-average fleet age and remaining lease term calculated based on net book value.the following table sets forth the net book value and percentage of the net book value of our aircraft portfolio operating in the indicated regions as of Decemb
181、er 31,2013 and 2012:December 31,2013December 31,2012Regionnet Book Value%of totalnet Book Value%of total(dollars in thousands)Asia/Pacific$3,317,11843.6%$2,245,00235.9%europe2,656,81634.9%2,398,53138.4%Central America,South America and Mexico829,93010.9%788,18912.6%U.S.and Canada436,6535.7%457,5467.
182、3%the Middle east and Africa372,6184.9%362,5955.8%total$7,613,135100.0%$6,251,863100.0%t W e n t Y-n i n ethe following table sets forth the number of aircraft we leased by aircraft type as of December 31,2013 and 2012:December 31,2013December 31,2012number of Aircraft%of totalnumber of Aircraft%of
183、totalAirbus A319-10063.1%74.5%Airbus A320-2004221.8%2918.7%Airbus A321-20073.6%53.2%Airbus A330-200168.3%149.0%Airbus A330-30052.6%31.9%Boeing 737-700105.2%85.2%Boeing 737-8005025.9%3824.5%Boeing 767-300eR31.6%31.9%Boeing 777-200eR10.5%10.7%Boeing 777-300eR63.1%63.9%embraer e17584.1%85.2%embraer e19
184、02311.9%2314.8%AtR 72-600168.3%106.5%total193100.0%155100.0%As of December 31,2013,we had contracted to buy 327 new aircraft for delivery through 2023,with an estimated aggregate purchase price(including adjustments for inflation)of$27.3 billion,for delivery as follows:Aircraft type20142015201620172
185、018thereaftertotalAirbus A321-200(1)13619Airbus A320/321 neO312152050Airbus A350 XWB(2)12930Boeing 737-8001320151159Boeing 737-8/9 MAX(3)896104Boeing 777-300eR58215Boeing 787-9/10173745AtR 72-600415 total3535202431182327(1)All of our Airbus A321-200 aircraft will be equipped with sharklets.(2)As of
186、December 31,2013,five of the Airbus A350-1000 aircraft were subject to reconfirmation.(3)As of December 31,2013,20 of the Boeing 737-8 MAX aircraft were subject to reconfirmation.tH iRtYOur lease placements are progressing in line with expectations.As of December 31,2013,we have entered into contrac
187、ts for the lease of new aircraft scheduled to be delivered as follows:Delivery Yearnumber of Aircraftnumber Leased%Leased20143535100.0%20153535100.0%2016201260.0%201724937.5%201831722.6%thereafter182 total32798Aircraft Industry and Sources of RevenuesOur revenues are principally derived from operati
188、ng leases with scheduled and charter airlines.As of December 31,2013,2012 and 2011,we derived more than 90%of our revenues from airlines domiciled outside of the U.S.,and we anticipate that most of our revenues in the future will be generated from foreign customers.the airline industry is cyclical,e
189、conomically sensitive and highly competitive.Airlines and related companies are affected by fuel price vola-tility and fuel shortages,political and economic instability,currency volatility,natural disasters,terrorist activities,changes in national policy,competitive pressures,labor actions,pilot sho
190、rtages,insurance costs,recessions,health concerns and other political or economic events adversely affecting world or regional trading markets.Our airline customers ability to react to,and cope with,the volatile competitive environment in which they operate,as well as our own competitive environment
191、,will affect our revenues and income.Demand for air travel has consistently grown in terms of both the number of aircraft and passenger traffic.According to the international Air transport Association(“iAtA”),passenger traffic demand grew 5.2%in 2013 over the prior year,which is aligned with the ann
192、ual growth rate over the past 30 years.Additionally,the number of leased aircraft in the global fleet has increased over that same time period.the industry has remained resilient over time,while enduring the effects of both business cycle downturns and external events.today,air travel has penetrated
193、 most world regions,with the highest growth now coming from emerging markets and economies.While growth rates are lower in more mature markets,there is a substantial need in those markets to replace aircraft reaching the end of their economic useful lives.Long-term passenger traffic growth is positi
194、ve as iAtA indicated that airlines expect to see a 5.4%com-pound annual growth rate between 2013 and 2017.the long-term outlook for aircraft demand remains robust due to increased passenger traffic and the need to replace aging planes.the airline industry is cyclical and generally grows along with t
195、he economy.Historically,there has been a strong posi-tive correlation between changes in world Gross Domestic Product(“GDP”),measured in U.S.dollars,and changes in passenger traffic(as indicated by revenue passenger kilometers(“RPK”),an industry-standard measure of passengers flown where each RPK re
196、presents one kilometer traveled by a paying customer).the business cycle effects are such that RPK declines or softens within recessionary periods.However,aircraft inventory has trended upward consistently,regardless of the economic cycle,as many aircraft are delivered during downturns despite reduc
197、ed passenger travel.the success of the commercial airline industry is intricately linked to the strength of global economic development,which may be negatively impacted by macroeconomic conditions,geopolitical and policy risks and instability in the Middle east.Despite industry cyclicality and curre
198、nt economic stresses,we remain optimistic about the long-term growth prospects for air transportation.We see a growing demand for aircraft leasing in the broader industry and a role for ALC in helping airlines modernize their fleets to support the growth of the airline industry.t H i Rt Y-O n eLiqui
199、dity and Capital ResourcesOverviewWe finance the purchase of aircraft and our business with available cash balances,internally generated funds,includ-ing aircraft sales and trading activity,and debt financings.from our inception in 2010,we have structured the Company to be an investment grade compan
200、y and our debt financing strategy has focused on funding our business on an unse-cured basis.Unsecured financing provides us with operational flexibility when selling or transitioning aircraft from one airline to another.We may,to a limited extent,utilize export credit financing in support of our ne
201、w aircraft deliveries.in 2013,the Company received two corporate credit ratings.Our investment grade credit ratings further lowered our cost of funds and broadened our access to attractively priced capital.Our long-term debt financing strategy will be focused on continuing to raise unsecured debt in
202、 the global bank and capital markets.During the year ended December 31,2013,we incurred additional debt financing aggregating$2.6 billion,which included$1.3 billion in senior unsecured notes,the addition of$957.0 million in capacity to our Syndicated Unsecured Revolving Credit facility which now tot
203、als$2.0 billion and additional debt facilities aggregating$364.0 million.We ended 2013 with total debt outstanding of$5.9 billion compared to$4.4 billion in 2012.As of December 31,2013 we had developed a 43-member,globally diversified banking group,which has provided us in excess of$4.4 billion in f
204、inancing and we have raised$3.3 billion in financing in the capital markets.We ended 2013 with total unsecured debt outstanding of$4.3 billion compared to$2.6 billion in 2012,increasing the Companys unsecured debt as a percent-age of total debt to 73.5%as of December 31,2013 compared to 60.2%as of D
205、ecember 31,2012.the Companys fixed-rate debt as a percentage of total debt increased to 62.0%as of December 31,2013 from 53.9%as of December 31,2012.in addition,we reduced our composite cost of funds to 3.60%as of December 31,2013 from 3.94%as of December 31,2012.We increased our cash flows from ope
206、rations by 33.2%or$163.2 million to$654.2 million in 2013 as compared to$491.0 million in 2012.Our cash flows from operations contributed significantly to our liquidity position.We ended 2013 with available liquidity of$1.8 billion which is comprised of unrestricted cash of$270.2 million and undrawn
207、 bal-ances under our warehouse facilities and unsecured revolving credit facilities of$1.56 billion.We believe that we have sufficient liquidity to satisfy the operating requirements of our business through the next twelve months.Our financing plan for 2014 is focused on funding the purchase of airc
208、raft and our business with available cash bal-ances,internally generated funds,including aircraft sales and trading activity,and debt financings.Our debt financing plan will remain focused on continuing to raise unsecured debt in the global bank and capital markets.in addition,we may utilize,to a li
209、mited extent,export credit financing in support of our new aircraft deliveries.Our liquidity plans are subject to a number of risks and uncertainties,including those described in“item 1A.Risk factors”in our Annual Report on form 10-K,filed with the Securities and exchange Commission on february 27,2
210、014.tH iRtY-tW ODebtOur debt financing was comprised of the following at December 31,2013 and 2012:December 31,2013December 31,2012(dollars in thousands)UnSeCUReD Senior notes$3,055,620$1,775,000 Revolving credit facilities808,000420,000 term financings247,722248,916 Convertible senior notes200,0002
211、00,0004,311,3422,643,916SeCUReD Warehouse facilities828,4181,061,838 term financings654,369688,601 export credit financing71,5391,554,3261,750,439 total secured and unsecured debt financing5,865,6684,394,355 Less:Debt discount(12,351)(9,623)total debt$5,853,317$4,384,732SeLeCteD inteReSt RAteS AnD R
212、AtiOS:Composite interest rate(1)3.60%3.94%Composite interest rate on fixed debt(1)4.56%5.06%Percentage of total debt at fixed-rate61.98%53.88%(1)this rate does not include the effect of upfront fees,undrawn fees or issuance cost amortization.Senior unsecured notesDuring the year ended December 31,20
213、13,the Company issued$1.3 billion in aggregate principal amount of senior unsecured notes.On february 5,2013,the Company issued$400.0 million in aggregate principal amount of senior unsecured notes due 2020 that bear interest at a rate of 4.75%per annum.On June 26,2013,the Company concluded its offe
214、r to exchange up to$151.6 million aggregate principal amount of new notes for any and all of its outstanding 7.375%senior unsecured notes due January 30,2019 and issued$132.0 million aggregate principal amount of its 5.625%senior notes due 2017 in exchange for$125.4 million aggregate principal amoun
215、t of the old notes.On August 26,2013,the Company received an investment grade corporate credit rating of BBB from S&P with a stable outlook.the BBB rating was also assigned to the Companys$2.0 billion senior unsecured notes due 2016,2017 and 2020.effective August 26,2013,the additional interest of 0
216、.50%per annum assessed on the senior unsecured notes due 2017 was eliminated due to the rating of the notes by S&P.On October 1,2013,the Company issued$185.0 million in aggregate principal amount of senior unsecured notes in a private placement to institutional investors.the notes are comprised of$5
217、3.0 million of 3.64%senior unsecured notes due 2016 and$132.0 million of 4.49%senior unsecured notes due 2019.t HiRt Y-t H R e eOn november 19,2013,the Company issued$700.0 million in aggregate principal amount of senior unsecured notes due 2019 that bear interest at a rate of 3.375%per annum.As of
218、December 31,2013,the Company had$3.1 billion in senior unsecured notes outstanding.As of December 31,2012,the Company had$1.8 billion in senior unsecured notes outstanding.Unsecured revolving credit facilitiesWe have in place a senior unsecured revolving credit facility(the“Syndicated Unsecured Revo
219、lving Credit facility”),dated May 7,2013,as amended,which provides us with financing of up to$2.0 billion.the Syndicated Unsecured Revolving Credit facility accrues interest at a rate of LiBOR plus 1.25%on drawn balances and includes a 0.25%facility fee.the facility will mature in May 2017.During 20
220、13,the Company increased the aggregate principal amount for which it can borrow under its Syndicated Unsecured Revolving Credit facility by$957.0 million to$2.0 billion and executed an amendment to the facility which extended the availability period from 3 years to 4 years and reduced the pricing fr
221、om LiBOR plus a margin of 1.75%with no LiBOR floor and an undrawn fee of 0.375%to LiBOR plus 1.45%with no LiBOR floor and a 0.30%facility fee.effective August 26,2013,the pricing of our Syndicated Unsecured Revolving Credit facility has been further reduced to LiBOR plus 1.25%with no LiBOR floor and
222、 a 0.25%facility fee as a result of the investment grade corporate credit rating of BBB obtained from S&P.the total amount outstanding under our unsecured revolving credit facilities was$808.0 million and$420.0 million as of December 31,2013 and December 31,2012,respectively.Warehouse facilitiesWe h
223、ave a revolving credit facility(the“2010 Warehouse facility”),dated June 21,2013,as amended,which provides us with financing of up to$1.0 billion.We amended the 2010 Warehouse facility in June 2013.Pursuant to the amend-ment we reduced the facility size to$1.0 billion from$1.25 billion,extended the
224、period for which we can draw on the facility to June 2015 from June 2014 and extended the subsequent term out option through 2018.the interest rate on the 2010 Warehouse facility was reduced to LiBOR plus 2.25%from LiBOR plus 2.50%on drawn balances and to 0.50%from 0.75%on undrawn balances and provi
225、ded a 10%unsecured guarantee on the 2010 Warehouse facility.As of December 31,2013,the Company had borrowed$828.4 million under our warehouse facilities and pledged 32 aircraft as collateral with a net book value of$1.2 billion.As of December 31,2012,the Company had borrowed$1.1 billion under our wa
226、rehouse facilities and pledged 38 aircraft as collateral with a net book value of$1.6 billion.the Company had pledged cash collateral and lessee deposits of$73.1 million and$104.3 million at December 31,2013 and December 31,2012,respectively.Export credit financingsin March 2013,the Company issued$7
227、6.5 million in secured notes due 2024 guaranteed by the ex-im Bank.the notes will mature on August 15,2024 and will bear interest at a rate of 1.617%per annum.the Company used the proceeds of the offering to refinance a portion of the purchase price of two Boeing 737-800 aircraft and the related pre
228、mium charged by ex-im Bank for its guarantee of the notes.tH iRtY-fOU RCredit Ratingsin May 2013,the Company received a corporate credit rating of A from Kroll Bond Ratings,followed by a second investment grade corporate credit rating of BBB from S&P in August 2013.the following table summarizes our
229、 current credit ratings:Rating AgencyLong-term DebtCorporate RatingOutlookDate of Last Ratings ActionS&PBBBBBBStable OutlookAugust 26,2013Kroll Bond RatingsAAStable OutlookMay 9,2013While a ratings downgrade would not result in a default under any of our debt agreements,it could adversely affect our
230、 ability to issue debt and obtain new financings,or renew existing financings,and it would increase the cost of our financings.Results of OperationsYear ended December 31,2013Year ended December 31,2012Year ended December 31,2011(in thousands)ReVenUeS Rental of flight equipment$836,516$645,853$332,7
231、19 Aircraft sales,trading and other22,1599,8934,022 total revenues858,675655,746336,741eXPenSeS interest168,743130,41944,862 Amortization of discounts and deferred debt issue costs23,62716,9949,481 extinguishment of debt3,349 interest expense192,370147,41357,692 Depreciation of flight equipment280,0
232、37216,219112,307 Selling,general and administrative71,21256,45344,559 Stock-based compensation21,61431,68839,342 total expenses565,233451,773253,900 income before taxes293,442203,97382,841 income tax expense(103,031)(72,054)(29,609)net income$190,411$131,919$53,232OtHeR finAnCiAL DAtA:Adjusted net i
233、ncome(1)$219,767$163,404$87,954 Adjusted eBitDA(2)$785,981$596,451$290,168(1)Adjusted net income is a measure of financial and operational performance that is not defined by GAAP.See note 1 in“Selected financial Data”elsewhere in this Annual Report for a discussion of adjusted net income as a non-GA
234、AP measure and a reconciliation of this measure to net income and cash flows from operations.(2)Adjusted eBitDA is a measure of financial and operational performance that is not defined by GAAP.See note 2 in“Selected financial Data”elsewhere in this Annual Report for a discussion of adjusted eBitDA
235、as a non-GAAP measure and a reconciliation of this measure to net income and cash flows from operations.t H i Rt Y-f i V e2013 Compared to 2012Rental revenueAs of December 31,2013,we had acquired 193 aircraft at a total cost of$8.2 billion and recorded$836.5 million in rental revenue for the year th
236、en ended,which included overhaul revenue of$34.4 million.in the prior year,as of December 31,2012,we had acquired 155 aircraft at a total cost of$6.6 billion and recorded$645.9 million in rental revenue for the year ended December 31,2012,which included overhaul revenue of$25.0 million.the increase
237、in rental revenue was attributable to the acquisition and lease of additional aircraft.the full impact on rental revenue for aircraft acquired during the period will be reflected in subsequent periods.All of the aircraft in our fleet were leased as of December 31,2013.All of the aircraft in our flee
238、t were leased as of December 31,2012,except for one aircraft with respect to which we had entered into a non-binding lease commitment but for which delivery had not yet occurred.Aircraft sales,trading and other revenueAircraft sales,trading and other revenue totaled$22.2 million for the year ended D
239、ecember 31,2013 compared to$9.9 million for the year ended December 31,2012.During the year ended December 31,2013,the Company sold one aircraft from our operating lease portfolio and traded 11 737-300 aircraft,two spare engines and a corporate aircraft,recording gains on aircraft sales and trading
240、activity of$18.9 million.During the year ended December 31,2012,the Company sold one aircraft from our operating lease portfolio and traded two 737-300 aircraft and one spare engine,recording gains on aircraft sales and trading activity of$3.9 million.Interest expenseinterest expense totaled$192.4 m
241、illion for the year ended December 31,2013 compared to$147.4 million for the year ended December 31,2012.the change was primarily due to an increase in our average outstanding debt balances,partially offset by a decrease in our composite cost of funds,resulting in a$38.3 million increase in interest
242、 and a$6.6 million increase in amortization of our discounts and deferred debt issue costs.We expect that our interest expense will increase as our average debt balance outstanding continues to increase.interest expense will also be impacted by changes in our composite cost of funds.Depreciation exp
243、enseWe recorded$280.0 million in depreciation expense of flight equipment for the year ended December 31,2013 com-pared to$216.2 million for the year ended December 31,2012.the increase in depreciation expense for 2013,com-pared to 2012,was attributable to the acquisition of 40 additional aircraft a
244、ggregating$1.7 billion.the full impact on depreciation expense for aircraft added during the year will be reflected in subsequent periods.Selling,general and administrative expensesWe recorded selling,general and administrative expenses of$71.2 million for the year ended December 31,2013 com-pared t
245、o$56.5 million for the year ended December 31,2012.Selling,general and administrative expense as a per-centage of revenue decreased to 8.3%for the year ended December 31,2013 compared to 8.6%for the year ended December 31,2012.As we continue to add new aircraft to our portfolio,we expect selling,gen
246、eral and administrative expense to decrease as a percentage of our revenue.tH iRtY-S iXStock-based compensation expenseStock-based compensation expense totaled$21.6 million for the year ended December 31,2013 compared to$31.7 million for the year ended December 31,2012.this decrease is primarily a r
247、esult of the effects of the expense recognition pattern related to our book-value RSUs,which is calculated based on a tranche by tranche vesting sched-ule.Additionally,as of June 30,2013,all of the Companys outstanding employee stock options had fully vested,further contributing to the decrease in s
248、tock-based compensation expense.See note 11 of“notes to Consolidated financial Statements”elsewhere in this Annual Report for additional information on stock-based compensation.Taxesthe effective tax rate for the year ended December 31,2013 was 35.1%compared to 35.3%for the year ended December 31,20
249、12.the change in effective tax rate for the respective periods is due to the effect of changes in permanent differences.Net incomefor the year ended December 31,2013,the Company reported consolidated net income of$190.4 million,or$1.80 per diluted share,compared to a consolidated net income of$131.9
250、 million,or$1.28 per diluted share,for the year ended December 31,2012.the increase in net income for 2013,compared to 2012,was primarily attributable to the acquisi-tion and lease of additional aircraft,an increase in aircraft sales,trading and other revenue and lower interest rates on our indebted
251、ness.Adjusted net incomeWe recorded adjusted net income of$219.8 million for the year ended December 31,2013 compared to$163.4 million for the year ended December 31,2012.the change in adjusted net income for 2013,compared to 2012,was primarily attributable to the acquisition and lease of additional
252、 aircraft,an increase in aircraft sales,trading and other revenue and lower interest rates on our indebtedness.Adjusted net income is a measure of financial and operational performance that is not defined by GAAP.See note 1 in“Selected financial Data”elsewhere in this Annual Report for a discussion
253、of adjusted net income as a non-GAAP measure and a reconciliation of this measure to net income and cash flows from operations.Adjusted EBITDAWe recorded adjusted eBitDA of$786.0 million for the year ended December 31,2013 compared to$596.5 million for the year ended December 31,2012.the change in a
254、djusted eBitDA for 2013,compared to 2012,was primarily attrib-utable to the acquisition and lease of additional aircraft and an increase in aircraft sales,trading and other revenue and lower interest rates on our indebtedness.Adjusted eBitDA is a measure of financial and operational performance that
255、 is not defined by GAAP.See note 2 in“Selected financial Data”elsewhere in this Annual Report for a discussion of adjusted eBitDA as a non-GAAP mea-sure and a reconciliation of this measure to net income and cash flows from operations.2012 Compared to 2011Rental revenueAs of December 31,2012,we had
256、acquired 155 aircraft at a total cost of$6.6 billion and recorded$645.9 million in rental revenue for the year then ended,which included overhaul revenue of$25.0 million.in the prior year,as of December 31,2011,we had acquired 102 aircraft at a total cost of$4.4 billion and recorded$332.7 million in
257、 rental revenue for the year ended December 31,2011,which included overhaul revenue of$11.0 million.the increase in rental revenue was attributable to the acquisition and lease of additional aircraft.the full impact on rental revenue for aircraft acquired during the period will be reflected in subse
258、quent periods.t HiRt Y-S e V e nAll of the aircraft in our fleet were leased as of December 31,2012,except for one aircraft with respect to which we had entered into a non-binding lease commitment but for which delivery had not yet occurred.All of the aircraft in our fleet were leased as of December
259、 31,2011.Interest expenseinterest expense totaled$147.4 million for the year ended December 31,2012 compared to$57.7 million for the year ended December 31,2011.the change was primarily due to an increase in our average outstanding debt balances resulting in a$85.6 million increase in interest,an in
260、crease of$7.5 million in amortization of our deferred debt issue costs,offset by a$3.3 million charge for the extinguishment of debt recorded during the second quarter of 2011.We expect that our interest expense will increase as our average debt balance outstanding continues to increase.interest exp
261、ense will also be impacted by our composite cost of funds.Depreciation expenseWe recorded$216.2 million in depreciation expense of flight equipment for the year ended December 31,2012 com-pared to$112.3 million for the year ended December 31,2011.the increase in depreciation expense for 2012,com-par
262、ed to 2011,was attributable to the acquisition of 53 additional aircraft aggregating$2.2 billion.the full impact on depreciation expense for aircraft added during the year will be reflected in subsequent periods.Selling,general and administrative expensesWe recorded selling,general and administrativ
263、e expenses of$56.5 million for the year ended December 31,2012 com-pared to$44.6 million for the year ended December 31,2011.Selling,general and administrative expense as a per-centage of revenue decreased to 8.6%for the year ended December 31,2012 compared to 13.2%for the year ended December 31,201
264、1.As we continue to add new aircraft to our portfolio,we expect selling,general and administrative expense to decrease as a percentage of our revenue.Stock-based compensation expenseStock-based compensation expense totaled$31.7 million for the year ended December 31,2012 compared to$39.3 million for
265、 the year ended December 31,2011.this decrease is primarily a result of the effects of the expense recognition pattern related to our book-value RSUs,which is calculated based on an accelerated vesting schedule.the decrease was partially offset by grants made in 2012,as the full impact on stock-base
266、d compensation expense for the 2012 grants will be reflected in the subsequent periods.See note 11 of“notes to Consolidated financial Statements”elsewhere in this Annual Report for additional information on stock-based compensation.Taxesthe effective tax rate for the year ended December 31,2012 was
267、35.3%compared to 35.7%for the year ended December 31,2011.the change in effective tax rate for the respective periods is due to the effect of changes in permanent differences as well as the effect of discrete tax items related to stock-based compensation.Net incomefor the year ended December 31,2012
268、,the Company reported consolidated net income of$131.9 million,or$1.28 per diluted share,compared to a consolidated net income of$53.2 million,or$0.59 per diluted share,for the year ended December 31,2011.the increase in net income for 2012,compared to 2011,was primarily attributable to the acquisit
269、ion and lease of additional aircraft.Adjusted net incomeWe recorded adjusted net income of$163.4 million for the year ended December 31,2012 compared to$88.0 million for the year ended December 31,2011.the change in adjusted net income for 2012,compared to 2011,was primarily attributable to the acqu
270、isition and lease of additional aircraft.tH iRtY-e iGH tAdjusted net income is a measure of financial and operational performance that is not defined by GAAP.See note 1 in“Selected financial Data”elsewhere in this Annual Report for a discussion of adjusted net income as a non-GAAP measure and a reco
271、nciliation of this measure to net income and cash flows from operations.Adjusted EBITDAWe recorded adjusted eBitDA of$596.5 million for the year ended December 31,2012 compared to$290.2 million for the year ended December 31,2011.the change in adjusted eBitDA for 2012,compared to 2011,was primarily
272、attributable to the acquisition and lease of additional aircraft.Adjusted eBitDA is a measure of financial and operational performance that is not defined by GAAP.See note 2 in“Selected financial Data”elsewhere in this Annual Report for a discussion of adjusted eBitDA as a non-GAAP measure and a rec
273、onciliation of this measure to net income and cash flows from operations.Contractual ObligationsOur contractual obligations as of December 31,2013 and through february 27,2014 for purchase commitments are as follows:20142015201620172018thereaftertotal(dollars in thousands)Long-term debt obligations(
274、1)(2)$214,095$264,004$943,637$2,210,251$709,246$1,524,435$5,865,668interest payments on debt outstanding(3)190,646206,834194,706124,53581,86660,201858,788Purchase commitments2,321,3922,190,5171,357,7361,615,7892,781,52017,226,53327,493,487Operating leases2,0242,0832,1292,1812,58015,38726,384 total$2
275、,728,157$2,663,438$2,498,208$3,952,756$3,575,212$18,826,556$34,244,327(1)As of December 31,2013,the Company had$656.8 million of debt outstanding under the 2010 Warehouse facility.the Company is able to draw on the facility during an availability period that ends in June 2015 with a subsequent term
276、out option through 2018,which is the maturity in the contractual obligations schedule above.(2)As of December 31,2013,the Company had$808.0 million of debt outstanding under our revolving unsecured credit facilities.the outstanding drawn balances may be rolled until the maturity date of each respect
277、ive facility and have been presented as such in the contractual obligation schedule above.(3)future interest payments on floating-rate debt are estimated using floating rates in effect at December 31,2013.Off-balance Sheet ArrangementsWe have not established any unconsolidated entities for the purpo
278、se of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.We have,however,from time to time established subsidiaries and created partnership arrangements or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements,all of which ar
279、e consolidated.t H i Rt Y-n i n eCritical Accounting PoliciesWe believe the following critical accounting policies can have a significant impact on our results of operations,financial position and financial statement disclosures,and may require subjective and complex estimates and judgments.Lease re
280、venueWe lease flight equipment principally under operating leases and report rental income ratably over the life of each lease.Rentals received,but unearned,under the lease agreements are recorded in“Rentals received in advance”on our Consolidated Balance Sheet until earned.the difference between th
281、e rental income recorded and the cash received under the provisions of the lease is included in“Lease receivables,”as a component of“Other assets”on our Consolidated Balance Sheet.An allowance for doubtful accounts will be recognized for past-due rentals based on managements assessment of collectabi
282、lity.Our management team monitors all lessees with past due lease payments(if any)and discusses relevant operational and financial issues facing those lessees with our marketing executives in order to determine an appropriate allowance for doubtful accounts.in addition,if collection is not reasonabl
283、y assured,we will not recognize rental income for amounts due under our lease contracts and will recognize revenue for such lessees on a cash basis.Should a lessees credit quality deteriorate,we may be required to record an allowance for doubtful accounts and/or stop recognizing revenue until cash i
284、s received,both of which could have a material impact on our results of operations and financial condition.Our aircraft lease agreements typically contain provisions which require the lessee to make additional contingent rental payments based on either the usage of the aircraft,measured on the basis
285、 of hours or cycles flown per month(a cycle is one take-off and landing),or calendar-based time(“Maintenance Reserves”).these payments represent contributions to the cost of major future maintenance events(“Qualifying events”)associated with the aircraft and typically cover major airframe structural
286、 checks,engine overhauls,the replacement of life limited parts contained in each engine,landing gear overhauls and overhauls of the auxiliary power unit.these Maintenance Reserves are generally collected monthly based on reports of usage by the lessee or collected as fixed monthly rates.in accordanc
287、e with our lease agreements,Maintenance Reserves are subject to reimbursement to the lessee upon the occurrence of a Qualifying event.the reimbursable amount is capped by the amount of Maintenance Reserves received by the Company,net of previous reimbursements.the Company is only required to reimbur
288、se for Qualifying events during the lease term.the Company is not required to reimburse for routine maintenance or additional mainte-nance costs incurred during a Qualifying event.All amounts of Maintenance Reserves unclaimed by the lessee at the end of the lease term are retained by the Company.We
289、record as rental revenue the portion of Maintenance Reserves that we are virtually certain we will not reimburse to the lessee as a component of“Rental of flight equipment”in our Consolidated Statement of income.Maintenance Reserves which we may be required to reimburse to the lessee are reflected i
290、n our overhaul reserve liability,as a component of“Security deposits and maintenance reserves on flight equipment leases”in our Consolidated Balance Sheet.fO RtYestimating when we are virtually certain that Maintenance Reserves payments will not be reimbursed requires judgments to be made as to the
291、timing and cost of future maintenance events.in order to determine virtual certainty with respect to this contingency,our technical Asset Management department analyzes the terms of the lease,utilizes available cost estimates published by the equipment manufacturers,and thoroughly evaluates an airli
292、nes Maintenance Planning Document(“MPD”).the MPD describes the required inspections and the frequency of those inspections.Our technical Asset Management department utilizes this information,combined with their cumulative industry expe-rience,to determine when major Qualifying events are expected to
293、 occur for each relevant component of the aircraft,and translates this information into a determination of how much we will ultimately be required to reimburse to the lessee.We record Maintenance Reserves revenue as the aircraft is operated when we determine that a Qualifying event will occur outsid
294、e the non-cancelable lease term or after we have collected Maintenance Reserves equal to the amount that we expect to reimburse to the lessee as the aircraft is operated.Should such estimates be inaccurate,we may be required to reverse revenue previously recognized.in addition,if we can no longer ma
295、ke accurate estimates with respect to a particular lease,we will stop recognizing any Maintenance Reserves revenue until the end of such lease.All of our lease agreements are triple net leases whereby the lessee is responsible for all taxes,insurance,and aircraft maintenance.in the future,we may inc
296、ur repair and maintenance expenses for off-lease aircraft.We recognize repair and maintenance in our Consolidated Statements of income for all such expenditures.Lessee specific modifications such as those related to modifications of the aircraft cabin are expected to be capital-ized as initial direc
297、t costs and amortized over the term of the lease into rental revenue in our Consolidated Statements of income.Flight equipmentflight equipment under operating lease is stated at cost less accumulated depreciation.Purchases,major additions and modifications,and interest on deposits during the constru
298、ction phase are capitalized.We generally depreciate passenger aircraft on a straight-line basis over a 25-year life from the date of manufacture to a 15%residual value.Changes in the assumption of useful lives or residual values for aircraft could have a significant impact on our results of operatio
299、ns and financial condition.At the time flight equipment is retired or sold,the cost and accumulated depreciation are removed from the related accounts and the difference,net of proceeds,is recorded as a gain or loss.Our management team evaluates on a quarterly basis the need to perform an impairment
300、 test whenever facts or cir-cumstances indicate a potential impairment has occurred.An assessment is performed whenever events or changes in circumstances indicate that the carrying amount of an aircraft may not be recoverable.Recoverability of an air-crafts carrying amount is measured by comparing
301、the carrying amount of the aircraft to future undiscounted net cash flows expected to be generated by the aircraft.the undiscounted cash flows consist of cash flows from currently contracted leases,future projected lease rates and estimated residual or scrap values for each aircraft.We develop assum
302、ptions used in the recoverability analysis based on our knowledge of active lease contracts,current and future expectations of the global demand for a particular aircraft type,and historical experience in the aircraft leasing market and aviation industry,as well as information received from third-pa
303、rty industry sources.the factors considered in estimating the undiscounted cash flows are affected by changes in future periods due to changes in contracted lease rates,economic conditions,technology and airline demand for a particular aircraft type.in the event that an aircraft does not meet the re
304、coverability test,the aircraft will be recorded at fair value in accordance with our fair Value Policy,resulting in an impairment charge.Deterioration of future lease rates and the residual values of our aircraft could result in impairment charges which could have a significant impact on our results
305、 of operations and financial condition.to date,we have not recorded any impairment charges.f O Rt Y-O n eWe record flight equipment at fair value if we determine the carrying value may not be recoverable.We principally use the income approach to measure the fair value of aircraft.the income approach
306、 is based on the present value of cash flows from contractual lease agreements and projected future lease payments,including contingent rentals,net of expenses,which extend to the end of the aircrafts economic life in its highest and best use configuration,as well as a disposition value based on exp
307、ectations of market participants.these valuations are considered Level 3 valuations,as the valuations contain significant non-observable inputs.Stock-based compensationto compensate and incentivize our employees and directors,we grant stock-based compensation awards.to date,we have granted stock opt
308、ions(“Stock Options”)and restricted stock units(“RSUs”).All share-based payment awards granted have been equity classified awards.We account for Stock Options by estimating the grant date fair value of the award as calculated by the Black-Scholes-Merton(“BSM”)option-pricing model and amortizing that
309、 value on a straight-line basis over the requisite service period less any anticipated forfeitures.the fair value of book-value RSUs is determined based on the closing market price of the Companys Class A Common Stock on the date of grant,while the fair value of total Shareholder Return(“tSR”)RSUs i
310、s determined at the grant date using a Monte Carlo simulation model.included in the Monte Carlo simulation model are certain assumptions regarding a number of highly complex and subjective variables,such as expected volatility,risk-free interest rate and expected dividends.to appropriately value the
311、 award,the risk-free interest rate is estimated for the time period from the valuation date until the vesting date and the historical volatilities are estimated based on a historical timeframe equal to the time from the valuation date until the end date of the performance period.Due to our limited s
312、tock history since the completion of our initial public offering on April 25,2011,historical volatility was estimated based on all available information including peer group volatility.the estimation of the fair value of share-based awards requires considerable judgment.for future awards,we will be
313、required to continue to make such judgments,and while we intend to continue to use the approach discussed above to make key estimates,there can be no assurance that changes in such estimates will not have a significant impact to our results of operations in the future.Income taxesWe use the asset an
314、d liability method of accounting for income taxes.Under the asset and liability method,deferred income taxes are recognized for the tax consequences of“temporary differences”by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amo
315、unts and the tax basis of existing assets and liabilities.the effect on deferred taxes of a change in the tax rates is recognized in income in the period that includes the enactment date.We record a valuation allowance for deferred tax assets when the probability of realization of the full value of
316、the asset is less than 50%.Based on the timing of reversal of deferred tax liabilities,future anticipated taxable income based on lease and debt arrangements in place at the balance sheet date and tax planning strategies available to us,our management considers the deferred tax asset recoverable.Sho
317、uld events occur in the future that make the likelihood of recovery of deferred tax assets less than 50%,a deferred tax valuation allowance will be required that could have a significant impact on our results of operations and financial condition.We recognize the impact of a tax position,if that pos
318、ition has a probability of greater than 50%that it would be sus-tained on audit,based on the technical merits of the position.Recognized income tax positions are measured at the largest amount that has a probability of more than 50%of being realized.Changes in recognition or measurement are reflecte
319、d in the period in which the change in judgment occurs.As our business develops,we may take tax positions that have a probability of less than 50%of being sustained on audit which will require us to reserve for such positions.if these tax positions are audited by a taxing authority,there can be no a
320、ssurance that the ultimate resolution of such tax positions will not result in further losses.Such losses could have a significant impact on our results of operations and financial condition.fO RtY-tW OQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risk represents the risk of chang
321、es in value of a financial instrument,caused by fluctuations in interest rates and foreign exchange rates.Changes in these factors could cause fluctuations in our results of operations and cash flows.We are exposed to the market risks described below.Interest Rate Riskthe nature of our business expo
322、ses us to market risk arising from changes in interest rates.Changes,both increases and decreases,in our cost of borrowing,as reflected in our composite interest rate,directly impact our net income.Our lease rental stream is generally fixed over the life of our leases,whereas we have used floating-r
323、ate debt to finance a significant portion of our aircraft acquisitions.As of December 31,2013,we had$2.23 billion in floating-rate debt.As of December 31,2012,we had$2.03 billion in floating-rate debt.if interest rates increase,we would be obli-gated to make higher interest payments to our lenders.i
324、f we incur significant fixed-rate debt in the future,increased interest rates prevailing in the market at the time of the incurrence of such debt would also increase our interest expense.if our composite rate were to increase by 1.0%,we would expect to incur additional interest expense on our existi
325、ng indebtedness as of December 31,2013 and December 31,2012 of approximately$22.3 million and$20.3 million,each on an annualized basis,which would put downward pressure on our operating margins.the increase in additional interest expense the Company would incur is primarily due to an increase in the
326、 floating-rate debt outstanding as of December 31,2013 compared to December 31,2012.We also have interest rate risk on our forward lease placements.this is caused by us setting a fixed lease rate in advance of the delivery date of an aircraft.the delivery date is when a majority of the financing for
327、 an aircraft is arranged.We partially mitigate the risk of an increasing interest rate environment between the lease signing date and the delivery date of the aircraft,by having interest rate adjusters in a majority of our forward lease contracts which would adjust the final lease rate upward if cer
328、tain benchmark interest rates are higher at the time of delivery of the aircraft than at the lease signing date.Foreign Exchange Rate Riskthe Company attempts to minimize currency and exchange risks by entering into aircraft purchase agreements and a majority of lease agreements and debt agreements
329、with U.S.dollars as the designated payment currency.thus,most of our revenue and expenses are denominated in U.S.dollars.As of December 31,2013 and December 31,2012,1.6%and 2.5%,respectively,of our lease revenues were denominated in euros.As our principal currency is the U.S.dollar,fluctuations in t
330、he U.S.dollar as compared to other major currencies should not have a significant impact on our future operating results.f O Rt Y-t H R e ethe Board of Directors and ShareholdersAir Lease Corporation:We have audited the accompanying consolidated balance sheets of Air Lease Corporation and subsidiari
331、es as of December 31,2013 and 2012,and the related consolidated statements of income,shareholders equity and cash flows for each of the years in the three-year period ended December 31,2013.these consolidated financial state-ments are the responsibility of Air Lease Corporation and subsidiaries mana
332、gement.Our responsibility is to express an opinion on these consolidated financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board(United States).those standards require that we plan and perform the audit to obtai
333、n reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining,on a test basis,evidence sup-porting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation.We beli
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